Under s67A of the SIS Act, an LRBA can only be refinanced to replace the existing borrowing against the same single acquirable asset, limited to the outstanding principal, accrued interest, and reasonable refinance costs. It cannot be increased to release equity, fund repair, or add any amount unrelated to that same asset acquisition/maintenance/repair.

Doing so would breach s67’s borrowing prohibition because it falls outside the narrow exceptions in s67A(1)(a).

The Law (s67A SIS Act) — What is Allowed

s67A provides a specific exception to the general borrowing ban in s67, but only if all of the following are true:

1. Borrowed money is applied to acquire a single acquirable asset (plus certain incidental expenses)- only  at the time of acquisition of the property.  [classic.au…lii.edu.au]
2. Money can be applied to refinance a borrowing in relation to that same single acquirable asset (and no other asset).
3. The lender’s recourse is limited to that asset (limited recourse). [classic.au…lii.edu.au]

The ATO’s LRBA guidance aligns with this interpretation and confines LRBAs to very limited, asset‑specific borrowing.

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What a “Permitted Refinance” Looks Like

A compliant refinance may:

• Replace the existing LRBA (same asset) with the same or a new lender. [ato.gov.au]
• Cover the unpaid principal + any accrued interest on that LRBA, plus reasonable refinance/establishment costs. It cannot add amounts for any other purpose. [classic.au…lii.edu.au]

Why an Increased Loan Balance Is Not Permitted

1. Purpose test failure (s67A(1)(a))
   s67A only permits borrowings applied to the acquisition of the single acquirable asset and to refinance the borrowing for that same asset. An “equity‑top‑up” or any increase beyond what is required to replace the existing LRBA (plus accrued interest/costs) is not acquisition/refinance of the same borrowing — it is new borrowing for another purpose (for example, improvements or cash‑out), which the Act does not permit.

A refinance that increases the LRBA balance to fund improvements or release equity fails s67A because the borrowing is no longer strictly for acquisition or refinance of the same borrowing for the same asset. Only the outstanding LRBA amount (plus accrued interest and reasonable refinance costs) can be refinanced. Any extra borrowing is outside the permitted exception and risks breaching the SIS Act.

Disclaimer:
The above information is general in nature and is based on the SIS Act and ATO guidance relating to SMSF borrowing and LRBAs. It does not constitute financial advice, legal advice or tax advice. Trustees should seek professional advice specific to their circumstances before acting on this information.